In economic analysis, a basic rule learned early is: if your results don’t really reflect the real world you see, you probably made an error somewhere. In the case of the WalletHub piece, let us count the ways:
Reporting on a recent WalletHub comparison, the Mercury News ran a story with the astonishing claim that although California has one of the highest costs of living, “in terms of energy costs, it is surprisingly one of the most affordable in the country.” As a result of our policies, California has a high cost of living in large part because its energy costs are high, which help drive up the cost of everything else including high utility bills and high fuel costs that affect the costs of housing, goods, and services.
The Mercury News can only make its claim by accepting the WalletHub information without question, which upon even a cursory examination has substantial flaws. Putting aside the more detailed errors listed later, there are several problems with the WalletHub numbers:
1. Lack of a Common Denominator: The WalletHub study mixes different types of data without adjusting for a common comparison base, making it difficult to compare energy expenses across states accurately. The data attempts to compare household costs, like electricity bills, with individual costs, like gasoline prices, without converting them to a common unit of measurement, such as converting both to a per capita or per household basis. This is like mixing apples and oranges, and it can lead to misleading results. For example, a state with low household electricity costs but high individual gasoline prices might seem cheaper in energy expenses overall, but that might not be true when considering total energy expenditures for households. This skews the energy cost data and fails to give a meaningful comparison of energy expenses across different sources and states.
2. Generalized and Outdated Sources: The article only reports on generalized data sources without providing specific details, such as the calendar year, which is essential for context. Without this information, the data might be outdated and not accurately reflect the current energy cost ranking among states. For example, WalletHub has California as the 31st highest electricity bill, but in the latest data from US Energy Information Administration (12-month moving average), California has in fact vaulted into being the 13th highest. The same issue applies to gasoline costs. The most recent annual data from the US Department of Transportation on total vehicle miles traveled is from 2021 and presumably the source of the WalletHub calculations. Due to state-ordered closures during the pandemic, vehicle miles traveled was substantially lower in 2021 but especially in California – the last state to emerge from the pandemic-era closures – where restrictions caused less travel and lower gasoline usage compared to other states.
3. Variation in Different Energy Sources Ignored: The data also fails to consider that different energy sources are used across households, leading to inaccurate representations of energy costs across states. For example, the data combines the cost of heating oil with natural gas costs, even though households using heating oil presumably will not be using natural gas for heating. This would not be a problem if the numbers were adjusted to overall household averages, but WalletHub puts in the full cost for each energy source as if each household used this full amount. This mixing of different energy sources skews the results and does not give a proper comparison of household energy expenses.
As a result, the WalletHub tables show Wyoming with the highest energy costs primarily because they also show this state with the highest monthly home heating oil costs at $362. But the 2021 American Community Survey reports that only 0.1% of all occupied housing units in Wyoming use this energy source for heating. Therefore, a more accurate entry based on the total household average in this state would instead be $0.36. The table further misses other heating fuels such as wood and propane, which accounts for 16.0% of housing units in Wyoming and 5.3% in California.
4. There’s More to the Story, Other Energy Costs Not Included: The numbers used in the WalletHub study are already changing. In California, electricity prices continue to surge, already causing the state to have the 13th highest electricity bill in 2023, up from 18th highest in 2022. Electricity costs will rise even higher as households are pushed off natural gas by state and local policies and become more reliant on more costly electrical heat. Gasoline and diesel prices have also risen due to increased state fuel taxes on July 1, and vehicle miles traveled are continuing to recover from the enforced pandemic pause, which is driving up the cost of these energy sources.
In addition, the WalletHub table does not cover all energy costs. Not included are households reliant on propane, particularly mobile homes and households in rural areas. Also not incorporated are costs of distributed energy such as solar panels, which may have lower operating costs but are not cost-free when considering acquisition and installation of panels and batteries, annual maintenance, required replacement, and the shifting state picture on tariffs.
5. Significant Regional Energy Differences Ignored: The WalletHub data only considers state averages, overlooking the significant differences between regions in California. Coastal households have lower energy needs due to milder weather, but they also have higher incomes which allow them to evade the cost consequences of the state’s energy policies by installing solar panels and batteries to bypass if not profit off of rising electricity rates, using electric vehicles to avoid rising fuel prices, and telecommuting to avoid fuels altogether.
In contrast, energy demand is significantly higher in the more climate variable and lower income interior regions of California. On a regional basis using Energy Commission data, average household electricity use was as much as 85% higher in the state’s interior regions compared to the lowest use coastal area in 2021, and costs using average county residential rates were as much as 104% higher. Natural gas—which varies more by availability—ranges up to as much as nine times higher in the Central Valley compared to other parts of the state.